QUESTION 4

Your company is considering the purchase of a fleet of cars for $200,000. It can borrow at 9%. The cars will be used for four years. At the end of four years they will be worthless. You call a leasing agent and find that the cars can be leased for $55,000 per year. The corporate tax rate is 40% and the cars belong in CCA class 10 (a 30% class), what is the net advantage to leasing?

Select one:

a. $15,363

b. $5,399

c. $11,742

d. $7,771

e. $6,594

QUESTION 5

Al's Audio has a cost of debt of 5 percent, a cost of equity of 11 percent, and a cost of preferred stock of 8 percent. The weight for debt is 0.13, the weight for preferred shares is 0.34, and the weight for common stock is 0.53. The company's tax rate is 34 percent. What is the weighted average cost of capital for Al's Audio Shop?

Select one:

a. 9.15 percent

b. 6.54 percent

c. 6.14 percent

d. 9.45 percent

e. 8.98 percent

QUESTION 8

The market value of a firm that invests in projects providing a return less than its WACC should increase over time.

Select one:

True

False

QUESTION 16

The pure play approach:

Select one:

a. Involves examining investments outside of the firm that are similar to the project of interest.

b. Cannot be used if the firm has preferred stock outstanding.

c. Is most useful when each division makes a multitude of different products.

d. Should be used only if a firm has more than three divisions.

e. Is easier to implement than the subjective approach.

QUESTION 30

Employee turnover is an example of direct bankruptcy costs.

Select one:

True

False

QUESTION 42

An income stock typically generates high capital gains

Select one:

True

False